NYSE: WPM
COMPANY DESCRIPTION
Founded
in –1994 | Current Market Cap – 7.59 Billion USD
Wheaton
Precious Metals is the largest pure streaming company in the world. The Company
has entered into agreements to purchase all or a portion of the precious metals
or cobalt production from high-quality mines for an upfront payment and an
additional payment upon delivery of the metal. The Company’s production profile
is driven by a portfolio of low-cost, long-life assets, including a gold stream
on Vale’s Salobo mine, and silver streams on Glencore's Antamina mine and
Goldcorp's Penasquito mine. Wheaton's unique business model creates significant
shareholder value by providing:
Leverage
to increases in the price of precious metals or cobalt;
Additional
growth through the acquisition of new streams;
A
dividend yield, which has the potential to grow over time; and,
Participation
in the exploration success of the mines underlying its current agreements.
RECOMMENDATION
We rate Wheaton Precious Metals Corp. a BUY at
USD 17 for a target of USD 21.40 in half a year.
Below are the basic reasons to recommend
this stock as a Buy.
·
As part of its new streaming agreement, Wheaton
acquired 9 million shares of, or a roughly 11% stake in, First Majestic with a
six-month holding period. Subject to regulatory restrictions, Wheaton can cash
out the shares when needed.
·
Unlike some years ago, when Wheaton was
primarily a silver play, it now offers near-equal exposure to silver and gold.
The gold leap is a smart business move, considering how high exposure to the
yellow metal largely drove Royal Gold's and Franco-Nevada's cash flows over the
years.
·
Wheaton expects its fiscal 2018 gold production
to be like last year's at around 355,000 ounces, but it projects gold
production to average 370,000 ounces every year over the next five years,
thanks primarily to its agreements on Vale's Salobo mine and First Majestic's
San Dimas mine.
·
The Salobo agreement is a major diversification
push for Wheaton as it should boost gold's share in its top line. Between 2017
and 2021, Wheaton expects to generate 45% of its revenue from gold and the rest
from silver, a move that should help the company improve its margins and cash
flows.
·
Wheaton continues to deliver solid cash flows,
and the stock's still cheaper than Franco-Nevada and Royal Gold. The company
should be able to deliver on its gold investments, which, we believe, should
translate into strong returns for patient investors.
·
Wheaton Precious Metals Corp. focuses on making
large investments in a small number of mines. It has streaming deals with 20
operating mines and eight development projects.
·
Wheaton continues to generate strong operating
cash flows, which stand at $548 million for the trailing 12 months as against
net income worth roughly $206 million for the period. What matters is
management's increasing confidence in its cash flow-generation capabilities,
which was evidenced when Wheaton upped its dividend, or cash-generation payout,
significantly last year.
·
Wheaton links its dividend to cash flows and was
paying out 30% of the average of its trailing four quarters' operating cash
flows in dividends. Last year, the company boosted the percentage to 40%. With
that, Wheaton sent out a strong signal that its cash flows should continue to
improve, largely backed by a changing product mix with greater leverage to gold.
EARNINGS
Wheaton Precious Metals Corp.
announced consolidated unaudited earnings result for the second quarter and six
months ended June 30, 2018. For the quarter, the company reported sales of
$212,400,000 as compared to $199,684,000 for the same period last year.
Earnings before income taxes were
$314,918,000 as compared to $67,056,000 for the same period last year. Net
earnings were $318,142,000 as compared to $67,612,000 for the same period last
year. Basic and diluted earnings per share were $0.72 as compared to $0.15 for
the same period last year.
Cash generated from operating
activities was $135,200,000 as compared to $124,681,000 for the same period
last year. Adjusted net earnings in the second quarter of 2018 amounted to $73
million compared to $67 million in second quarter of 2017.
Basic adjusted earnings per share increased 9%
to $0.16 compared to $0.15 per share in the prior year. Operating cash flow was
$0.31 per share compared to $0.28 per share in the prior year, representing an
8% increase on a per share basis. Adjusted net earnings were $72,722,000 or
$0.16 per basic and diluted share as compared to $66,624,000 or $0.15 per basic
and diluted share for the same period last year.
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